Social and economic development of underdeveloped & developing countries bringing about an equitable growth eradicating the poverty, hunger, malnutrition, illiteracy and providing the poor better livelihood options...

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Infrastructure
development needs sustained investments of a long-term
nature. Not only is a rigorous monitoring of sector-wise
targets critical for the success of the entire investment programme, it is also
necessary for the policy environment to be dynamic in
nature

Equitable development is dependent on sustained
growth of an economy which is critically reliant on the sustainable development
of infrastructure. Infrastructure is, therefore, a driver for inclusive growth.
However, investments in infrastructure are not easily available due to
requirements of lumpy capital investment with very low returns. Such investments
are justified normally on grounds of social benefits rather than on financial
viability.

India is poised to become the third
largest economy in terms of GDP in the next two decades. At present, along with
China, it is one of the fastest growing economies in the world. The growth
momentum needs to be sustained to ensure that the fast pace of growth does not
peter down. Absence of world class infrastructure facilities in India is often
considered as one of the major impediments to growth. With the sprawling
urbanization, demand for infrastructure continues to
rise faster than the capacity in the economy tosatisfy such demands.

Infrastructure
sectors

Glancing across the major infrastructure
sectors, it is found that apart from telecom where teledensity is extremely
high (79.28 in May 2012 as compared to 0.31 in 1981) and tariffs one of the
lowest in the world, other sectors are yet to achieve levels of stable growth coupled
with quality services.

India has a road network of
33 lakh kilometres which is the second largest in the world. These roads carry
65 percent of the freight traffic and 80 percent of the passenger traffic of
the country. National Highways carry 40 percent of the traffic, yet constitute
only 1.7 percent (71,772 kms) of the total road network in the country and rural
roads cover a length of about 26.5 lakh kms. Only 20percent of this National
Highways network is four-lane, 50 percent two-lane and 30 percent single-lane.
The State Highways have also suffered from prolonged neglect.

As regards Indian Railways,
the largest rail network in Asia comprising about 64,000 route kilometres,
there has not been much growth in the network since independence. At the time
of independence, the route kilometres stood at 53, 596 kms. Hence, just about
10,000 route kilometres have been added in the last 65 years resulting in
saturation of routes and restricted capacity. Naturally,

the share of goods and
passengers carried has come down drastically since independence.

India has a total installed
capacity of 2.03 lakh MW of power as against 1,362 MW in 1947. Thermal power
forms 66.32 percent of this capacity and about hydel power 19.2 percent. The
per capita consumption has increased 49 times since independence and stood at
813.3 kwh for the year 2010-11. This was, however, less than one-third of the
world average per capita consumption of power. The power sector suffers from a
peaking deficit of 9.8 percent and anenergy shortage of 8.5 percent due to
underinvestment and poor maintenance. The distribution segment of the sector suffers
from average Aggregate Technical &Commercial losses of 27 percent and as
per the 13thFinance Commission’sprojections, in absolute terms, these losses
are projected to increase to Rs. 1.16 lakh crore by the year 2014-15.

At the end of the 11thFive Year Plan, India was the 9thlargest civil aviation
market in the world with a passenger handling capacity of over 220 million and
cargo handling capacity of 3.3 MT. However, air travel penetration continues to
be low at 0.04 air trips per capita per annum. The Indian civil aviation sector
was able to attract private investment of about Rs. 30,000 crore in four
airportsat Delhi, Mumbai, Hyderabad and Bengaluru. Airports Authority of India
had a plan to develop 35 non-metro airports in the country. Of these, 26 have
been developed and the balance would be completed in the current financial
year.

The Indian maritime sector handles
95 percent of India’s foreign trade by volume. There are 13 major ports and 187
minor/ intermediate ports in the country. In the year 2011-12, the major ports handled
560.1 million tonnes of traffic and the total cargo handled by all the ports
together was 915 million tonnes. The average turnaround time at major ports has
increased from 3.93 days to 4.67 days between 2006-07 and 2010-11. There has
also been a deterioration of 3 percent in the pre-berthing detention time.

Infrastructure
development through the Five Year Plans

In the initial Five Year
Plans, it was widely believed that agriculture needed the necessary push to
sustain the economy and the basic needs of food for the masses needed to be met.
There was also considerable importance attached to setting up heavy industries.
Infrastructure requirements were proposed to the extent of meeting the
aforesaid objectives and were never the stated objective of the Plan exercise
as such. However, there was heavy allocation of resourcestowards irrigation
and power since the two were necessary for the development of the agrarian
economy and industries. At a later stage in the 60s and the 70s, development of
roads also picked up momentum.

In the mid-80s onwards, the
thrust of the development process was towards obtaining state of the art
technology for the country. This resulted in impressive development of
communications technology. It was only from the Ninth Plan onwards that there
was a definite thrust towards infrastructure development in the Five Year Plans.
In each of the previous two Plan periods, the investment in infrastructure has
almost doubled. This is evident from Figure 1.

Infrastructure
investment and GDP

Investment in
infrastructure as a ratio to GDP was expected to increase from 5.7 at the end
of the Tenth Plan to 8 percent in the terminal year of the Eleventh Plan. It is
anticipated that infrastructure investment as a percentage of GDP would be 10
percent in the terminal year of the Twelfth Plan. Figure 2 depicts the
investment of infrastructure as a percentage of GDP over the Tenth and Eleventh Five Year Plans. It also
shows the projected percentage for the Twelfth Plan.Data published in May 2011
shows that the United States ofAmerica invests 2.5 percent of its GDP in
infrastructure against China’s 9 percent and Europe’s 5 percent.

Sectoral analysis

The sectoral analysis of investment
made in infrastructure sector reveals that electricity continues to absorb
about one-third of the total investment in both the Plan periods followed by
the road sector at approximately 15 percent. However, the rate of increase has been
the highest in telecom, airports and oil and gas pipelines between the Tenth
and Eleventh Five year Plans.

Infrastructure
Development programmes

Some of the important
infrastructure development programmes include the National Highway Development
Programme (NHDP) for development of National Highways. It has been one of the
most successfully rolled out programmes till date. The Pradhan Mantri Grameen
Sadak Yojana (PMGSY) is a programme for the development of rural roads to connect
over 1,000 habitations with all-weather roads. To develop and integrate the
North-Eastern states with the country, a programme called Special Accelerated
Road Development Programme for the North Eastern region is being implemented. A
massive programme for urban renewal has been undertaken through the Jawaharlal
Nehru National Urban Renewal Mission (JNNURM) by focussing on urban
infrastructure. Rural infrastructure comprising irrigation, roads, housing,
water supply, electrification and telecom connectivity is being undertaken through
Bharat Nirman. In the power sector, electricity is proposed to be provided to
all rural households under the Rajiv Gandhi Grameen Vidyutikaran Yojana
(RGGVY).

Approach to the
Twelfth Plan

The Twelfth Plan Approach Paper
stated that the thrust on accelerating the pace of investment in infrastructure
should continue for reasons of accelerating growth. However, since there would
be a continued strain on public resources during the Twelfth Plan due to their
requirement in backward and remote areas, private investment would be required
to meet the targets.

Financing of
infrastructure and private participation

Traditionally,
infrastructure development in India has been financed through public investments,
especially by the Central Government rather than the State Governments
although, of late, investments from the States have also been forthcoming. The share
of the Central Government has gone down from 40 percent of the investment in
the Tenth Plan to 34 percent in the Eleventh Plan. The share of the State
Governments has also declined from 35 percent to 30 percent between the Tenth
and the Eleventh Plans. It naturally follows that the share of private
investment is increasing steadily as can be seen from Figure 3.

The share of the public
sector in infrastructure investment has gone down from 75 percent in the Tenth
Plan to 36 percent in the Eleventh Plan and expected to go down further to 50
percent during the Twelfth Plan.

Public Private
Partnerships

The big thrust to infrastructure
investment has come due to the participation of the private sector. Public
Private Partnerships (PPPs) have been the primary means of channelizing private
investment into infrastructure sector which is considered rather unattractive
by the private sector for reasons of poor return and long gestation periods. The
rationale for PPPs lies in not only supplementing scarce public resources but
also in harnessing private sector efficiencies to provide quality services to
the public at large.

Public Private Partnerships
are intended to meet the public objectives of infrastructure provisions through
private means. These are sought to be achieved by way of long-term contract agreements
which specify the standards and specifications of the assets to be constructed
and maintained. Most of these projects are user-charge based wherein the authority
to collect the user charge/ toll/fee is delegated to the private partner.

Concerted efforts have been
made by the government towards creating an enabling environment for the
development and long-term sustainability of PPPs. These include the setting up
of an institutional framework comprising an appraisal and approval mechanism,
schemes of financial support including the Viability Gap Funding (VGF) Scheme.

Institutional
framework

In 2004, a Committee on Infrastructure
(CoI) was constituted under the chairmanship of the Prime Minister for evolving
policies with a view to creating world class infrastructure in the country. In
2009, the CoI was replaced by a Cabinet Committee on Infrastructure (CCI), also
under the chairmanship of the Prime Minister. A committee called the PPP
Appraisal Committee (PPPAC) has been constituted to appraise and recommend PPP
projects for approval. An Empowered Institution (EI) has been set up for the
purpose of sanctioning VGF to state level PPP projects.

Financial Support

Under the VGF scheme, the Central
Government provides grant of upto 20 percent of the project cost to the private
entity for implementing a PPP project. In the last financial year, a total of
390 projects were approved by PPPAC and EI involving a total investment of Rs.
3,05,010crore. A dedicated organization, called India Infrastructure Financing Corporation
Limited (IIFCL) has been set up to provide low cost and long-term funds to PPP
projects.

Standardization of
documents

The Central Government has evolved
and mandated standardized bidding documents for PPP projects in infrastructure
sector. Further, Model Concession Agreements (MCAs) have been developed for the
implementation of PPP projects. The bidding documents as well as the MCAs
provide considerable flexibility for project-specific changes. Standardization
enables adoption of international best practices in the Indian context.

Progress of PPPs

Public Private Partnerships
have been undertaken in roads, ports, airports, urban transport and power
transmission at the Central Government level. At the State Government level,
such partnerships are flourishing in sectors such as water supply and
sanitation, solid waste management, etc. Some representative PPP projects are
Delhi, Mumbai Hyderabad and Bangalore airports, Jhajjar transmission project in
Haryana, Hyderabad and Mumbai metro rail projects, Jaipur Kishangarh National
Highway, Gurgaon Expressway, container terminals at Tuticorin, Chennai and
JNPT, Ultra mega power projects, concessions for operation of container trains.

In one of its reports, the
World Bank has stated that India has been the top recipient of PPI activity since
2006. It accounted for almost half of the investment in new Private Participation
in Infrastructure (PPI) projects in developing countries implemented in the
first semester of 2011 and remained the largest market for PPI in the
developing world. A report prepared by the Asian Development Bank states that
India stands in the same league as developed economies like South Korea and
Japan on implementation of PPP projects. On a score of 100, Australia got the
highest score of 92.3, followed by South Korea 71.3, India 64.8 and Japan 63.7.

Constraints and
measures to boost infrastructure investment

It is widely believed that
there is considerable appetite in the market to absorb infrastructure, including
PPP projects. However, there are delays related to land acquisition and environmental
clearances. Long term funds are also not easily available and banks have
reached exposure limits related to sectoral lending. To mitigate the aforesaid constraints
related to absence of long term debt in the market, the Finance Ministry has approved
the mechanism for setting up infrastructure debt funds. The intent is to
provide refinancing to projects once they are into commercial operations. The
infrastructure debt funds would be able to attract insurance and pension funds
which are long term in nature.

Conclusion

“…we have given a
major push to infrastructure, particularly through PPP. A lot of investment avenues
are opening up in Railways, roads, ports and civil aviation.” -Dr. Manmohan
Singh, Prime Minister

Infrastructure development needs
sustained investments of a long-term nature. Not only is a rigorous monitoring
of sector-wise targets critical for the success of the entire investment
programme, it is also necessary for the policy environment to be dynamic in nature
so as to adapt easily to the global economic environment. Further, since
private investment is expected to flow in through PPPs for the development of infrastructure,
it is imperative that the institutional structures are strengthened and
investment decisions are based on well-laid down principles so as to avoid
future liabilities for the government. The Twelfth Plan will, perhaps, propel
the economy into a high growth trajectory. That would be possible only if infrastructure
develops at a pace faster than the economy.

Institutional
Mechanism for Monitoring of PPP Projects

The Cabinet Committee on
Infrastructure (CCI) has recently approved a proposal from the Planning
Commission to set up an Institutional Mechanism for monitoring and enforcement
of provisions in PPP projects. With an increasing reliance being placed on PPP
projects across many wings of the government, it has become necessary to adopt
a well-defined institutional structure for overseeing contract performance
effectively. The Institutional Framework requires project authorities to create
a two-tier mechanism for monitoring the performance of PPP projects:

2. A PPP Performance Review
Unit (PRU) at the Ministry or State Government level, as the case may be.

The PMU is to prepare a
report to be submitted to PRU within 15 days of the close of the relevant
month. The report is to cover compliance of conditions, adherence to time
lines, assessment of performance, remedial measures, imposition of penalties,
etc. The PRU is to review the reports submitted by the different PMUs and
oversee or initiate action for rectifying any defaults or lapses. This is an
important governance mechanism in an area which will see a lot of activity in
future. It will ensure good governance, accountability, efficiencyand economy
in spending. The Planning Commission will have a central role in ensuring high
quality monitoring. The Cabinet will have a chance to monitor every quarter.

By : Namita Mehrotra The author is Director (Infrastructure)
in the Planning Commission